* Feature: Fentanyl Warfare – How China Uses Narcotics Enforcement as Political Leverage
* Argentine Central Bank Moves to Expand the Use of Yuan Domestically
* China Courts Palestinian Leadership in Latest Effort to Expand Influence in the Middle East
* China’s Export Restrictions on Critical Metals Escalate Technology War with the West
* The Effects of Wagner’s Uprising on the Sino-Russian Partnership
Feature: Fentanyl Warfare – How China Uses Narcotics Enforcement as Political Leverage
By Sunny Cheung
The recent tit-for-tat over the fentanyl crisis between the US and China has introduced a new frontier in the two countries’ ongoing geopolitical struggle. The US Department of Justice (DOJ) took a significant step by indicting China-based companies and their employees, alleging that they knowingly manufactured, marketed, sold, and supplied precursor chemicals for fentanyl production in the US, a clear violation of federal law. These charges represent the first time China-based companies and nationals have been prosecuted for trafficking fentanyl precursor chemicals into the US (DOJ, June 23, 2023).
The critical implications of these indictments are revealed in the scale of the seizures. The Drug Enforcement Administration (DEA) intercepted over 200 kilograms of fentanyl-related precursor chemicals during the investigations, enough to produce deadly doses that could kill an estimated 25 million Americans (DOJ, June 23, 2023). Yet, despite these staggering figures, the Chinese Embassy issued a fact sheet disputing the claims and criticizing US’ law enforcement (China Embassy in the US, June 29, 2023).
The fact sheet issued by the Chinese Embassy in the US added a new dimension to the ongoing US-China geopolitical tensions. The document was Beijing’s defiant response to the US DOJ unprecedented indictment of Chinese companies and nationals involved in the production and distribution of fentanyl precursors (Chinese Embassy in the US, June 29, 2023). This indictment was a key move by the Biden administration in cracking down on China’s complicity in the escalating US fentanyl crisis. Nevertheless, the reaction from Beijing, marked by stern pushback and an undercurrent of political maneuvering, suggest a concerning shift from cooperative measures towards narcotics control to a more contentious approach.
A Shift in China’s Approach to Counter-Narcotics
The fact sheet and subsequent responses from the Chinese Foreign Ministry Spokesperson present a perplexing blend of denial, defiance, and a not-so-subtle attempt to weaponize the issue for political gains. This trend is a disturbing departure from China’s prior commitments to counter-narcotics cooperation, and it raises questions about Beijing’s willingness to curb illicit fentanyl production and trafficking (MFA, June 24, 2023).
The stark contradictions in China’s official positions are best illustrated by comparing items 5 and 7 of the embassy’s fact sheet. On one hand, item 5 reiterates China’s adherence to the UN 1988 Convention, implementing stringent controls on fentanyl-related substances. But in the same breath, item 7 argues that fentanyl precursors are akin to everyday substances like oil and water, implying they should and can require no governmental oversight for their production and distribution (Chinese Embassy in the US, June 23, 2023). This contradictory stance reveals a loophole that might be exploited to evade accountability and continue unchecked drug trafficking under the guise of legal trade.
The changing tune in China’s approach to counter-narcotics is further highlighted by contrasting recent remarks with past statements. In 2019, comments from Chinese officials, such as Liu Yuejin, one of China’s top drug control officials, demonstrated a sense of urgency and willingness to coordinate efforts against fentanyl abuse (Xinhua, April 1, 2019). Today, the rhetoric is strikingly different. The Ministry of Foreign Affairs (MFA) spokesperson, responding to the DOJ’s recent arrests, called the US actions “arbitrary detention and unilateral sanction,” accusing it of seriously harming the basic human rights of Chinese nationals and the interests of Chinese companies (MFA, June 24, 2023).
The reality, as per DOJ documents, paints a different picture. Amarvel Biotech, a Chinese company, has been found openly advertising the shipment of fentanyl precursor chemicals to the US and Mexico, where drug cartels are known to synthesize fentanyl for illegal distribution (DOJ, June 23, 2023). This seemingly explicit involvement of Chinese firms in the drug trade starkly contradicts Beijing’s claims of lawful compliance.
Politicizing the Drug Crisis: A New Form of Leverage
The cessation of dialogue with the US on combating transnational drug crime following Nancy Pelosi’s visit to Taiwan in 2022 is another watershed. It highlights Beijing’s willingness to politicize the drug crisis and leverage it as a hostage in larger geopolitical negotiations (MFA, August 5, 2022). This leverage is not something Beijing is averse to, as they have consistently been using contentious issues such as human rights and cross-strait relations as bargaining chips to cease military and climate collaboration with the US counterpart. These actions of weaponization are further solidified by China’s stance after the recent visit of the US Secretary of State Antony Blinken.
Despite this diplomatic engagement, China remains resolute in its decision to not reopen dialogue on this grave concern. Shen Yamei, a scholar at the state-backed think tank, contends that “You can’t have sanctions on one side” and discussions on the other, she argues, demonstrating China’s increasing defensiveness and reluctance to address the issue while it is being held accountable (CNBC, June 20, 2023).
In a further spin of the narrative, after Blinken’s visit to China, Chinese state media suggests that it is the US and Biden administration, with the 2024 Presidential election looming, that is desperate to secure help from China to stabilize relations and bolster its domestic image (People’s Daily, June 19, 2023). This narrative probably emboldens Beijing to maintain its strategy of shifting urgency and responsibility, further indicating their intention to prolong the dialogue unless it aligns with their interests.
This standoff, which is more of a geopolitical power play, not only undermines the global counter-narcotics efforts but also signals an alarming new trend where Beijing is ready to hold urgent humanitarian issues and global concerns hostage to advance their geopolitical agenda. Beijing’s pattern of deploying contentious issues as bargaining chips is increasingly discernible and concerning, especially when it involves a crisis as immediate and devastating as the fentanyl epidemic.
In conclusion, the changing stance of the PRC authorities towards narcotics control is likely to present an enduring challenge for the foreseeable future. Beijing once cooperated with the US government in restricting the production and trafficking of fentanyl, contributing to a global effort against this deadly crisis. But recent developments suggest that such cooperation has halted, primarily due to political conflict. Beijing appears increasingly ready to link the cessation of counter-narcotics cooperation with contentious geopolitical issues, effectively holding the US hostage to its agenda-setting. Looking ahead, unless the US bends to Beijing’s interests, China is likely to maintain a hardening stance and exhibit further reluctance to cooperate on addressing this international crisis. As long as Beijing fails to comply with US drug laws and regulations, the ongoing fentanyl epidemic will remain a grave concern, one which will impact the lives of countless victims.
Sunny Cheung is a Visiting Fellow at the SNR Agora Institute at Johns Hopkins University and a specialist in Chinese politics, cross-strait relations, digital authoritarianism, and security. As a co-founder of Taiwan-based Flow HK Media, he is actively engaged in fighting authoritarian propaganda and promoting democracy through analytical and investigative journalism in the region.
Argentine Central Bank Moves to Expand the Use of Yuan Domestically
On June 29, the Central Bank of Argentina announced that it was going to allow commercial banks to open accounts and withdraw deposits in yuan. This shift was made possible by an expanded currency swap mechanism established in early June, when Argentina’s economic minister was visiting China; the agreement will allow 130 billion yuan to be exchanged for 4.5 trillion pesos over three years.
This comes several months after Argentina declared on April 26 that it would start to allow companies to use yuan to settle accounts when importing items from China. Between April and May, some 19 percent of Argentine imports from China were denominated in yuan, with more than 500 companies requesting the right to do so. Likewise, at least one Chinese credit card company, UnionPay, has been given permission to handle transactions in Argentina using yuan directly, rather than having to convert to and from the US dollar.
Argentina’s efforts to de-dollarize their economy may be more of a reaction to the state’s acute shortage of dollars in its foreign exchange reserves than a genuine desire to strengthen ties to China. A weak economy, skyrocketing inflation—reaching 109 percent in May alone—alongside a severe drought (estimated to have wiped out $20 billion in potential agricultural exports) have combined to constrain Argentina’s ability to conduct trade in dollars. The Argentine central bank was also able to leverage its exchange mechanism with China to pay back part of a $2.7 billion loan from the IMF due on June 29—a deadline that had already been extended from its original due date in early June.
Argentine efforts to draw closer to the PRC monetarily have been echoed by Brazilian President Lula da Silva, who expressed interest in de-dollarization during his visit to China in April. Buenos Aires and Brasília have also floated the idea of launching a joint currency together, though nothing concrete has come of the proposal. Regardless, experts suggest that the demand for US dollars domestically in Argentina will be hard to curtail, given its role as a safe harbor against rampant inflation.
As Argentina approaches its next presidential election this October, the current monetary crisis is expected to weigh heavily on voters’ minds; one of the three frontrunners, opposition candidate Javier Milei, has gone so far as to advocate for the direct adoption of the US dollar as Argentina’s official currency. Should the sitting government’s experiment with the yuan fail to stem the rising tide of inflation, such a proposal may appeal to the Argentine electorate.
China Courts Palestinian Leadership in Latest Effort to Expand Influence in the Middle East
Last April, China has already caught the attention of the American political establishment for its prominent diplomatic role in the Middle East when helping to broker the restoration of official relations between Saudi Arabia and Iran. In its latest move to expand its regional influence amongst Arab and Middle Eastern states, China has been seeking a closer partnership with the Palestinian National Authority and has expressed its intent to mediate the ongoing Palestinian-Israeli conflict.
To this end, Palestinian President Mahmoud Abbas was invited for a diplomatic visit to China this week to meet with Xi Jinping along with Chinese Foreign Minister Qin Gang. During this meeting, a joint statement was issued declaring that “Xinjiang-related issues are not human rights issues at all, but anti-violent terrorism, de-radicalization and anti-separatism.” Furthermore, Abbas declared that the Palestinian Authority supports China’s position with regards to Taiwan and Hong Kong, emphasizing that the CCP is the “only legal government representing the whole of China.”
Despite how Palestinians and the broader Arab world would have many reasons to support the persecuted Uyghur ethnic minority in China given their shared Muslim identity, President Abbas’ recent meeting in China demonstrates that the Palestinian leadership is willing to subordinate these principles to prioritize national interests. As their network of allies is limited and their statehood status remains stagnant, the Palestinian Authority is becoming significantly more dependent on Chinese funding, technology, and support in international organizations. Ultimately, the Palestinian leadership has assessed they gain more from Chinese backing than from advocating for Uyghur human rights.
Meanwhile, China’s efforts to expand its influence in the Middle East is largely tied to countering the US economic and security interests in the region. After its foreign policy success from the Saudi-Iran deal, if China were to additionally make progress on the Israel-Palestine issue, it may demonstrate to regional actors that Beijing is a more reliable and capable partner than Washington. However, the extent to which China — or any state actor for that matter— possesses the diplomatic expertise necessary to effectively mediate the complex and deeply entrenched Palestinian-Israeli conflict remains highly uncertain.
China’s Export Restrictions on Critical Metals Escalate Technology War with the West
China has recently announced export restrictions on two key elements — gallium and germanium — set to take effect on August 1. The restrictions intend to target metals and compounds that play a vital role in the production of semiconductors and other electronic devices. The Chinese Ministry of Commerce justified this decision by claiming that implementing export controls are imperative “to safeguard national security and interests.” Under these new regulations, exporters in China will be required to seek permission from the Ministry of Commerce, in some cases even needing approval from the State Council, providing detailed information about the target groups and the purpose of the exported materials.
China’s decision to impose export restrictions on gallium and germanium comes after the Western sanctions target its growing semiconductor industry. The Netherlands, following the lead of the United States, announced new export controls on advanced chip manufacturing equipment. Beijing has widely criticized these measures, claiming that these decisions highlighted “an abuse of export control measures and seriously disrupted free trade and international trade rules.”
China holds an absolute advantage in the global production of gallium and germanium, accounting for more than 95 percent of gallium and 67 percent of germanium production. The country is also the leading producer of rare earth elements, which are indispensable in producing numerous advanced technologies, including space technology and military weapons. With China’s dominant position in the production of these critical elements and rare earth materials, concerns have grown over the potential weaponization of export controls in the face of heightened competition between China and Western powers, namely the United States. However, while China has potential to significantly disrupt global supply chains which are heavily reliant on rare earth elements, some Chinese business executives expressed concerns that this strategy could backfire. As Chinese manufacturers are already struggling to stay afloat given the country’s ongoing economic downturn, limiting exports to foreign countries would likely exacerbate their poor performance.
The Effects of Wagner’s Uprising on the Sino-Russian Partnership
On June 23, the Wagner Mercenary Group’s uprising against the Russian government—led by its leader Yevgeny Prigozhin—has provided Beijing with difficult considerations regarding their already uneasy partnership with Russia. Putin’s illegal invasion of Ukraine has forced him to pivot to China and other non-Western nations to manage the impact of Western sanctions. The PRC, which has remained ambivalent towards Russia’s invasion, has attempted to maintain its relationship with Russia and the West despite sharp criticism from the international community.
The recent uprising in Russia has revealed to both China and the world that Russia’s domestic situation is not as stable as Vladimir Putin aspires to demonstrate. Though Putin was able to come to a deal with Prigozhin to end the uprising, Beijing has been closely watching the domestic situation to monitor potential aftershock effects. Immediately after the situation was under control, Russia sent its deputy foreign minister Andrey Rudenko to meet with Chinese Foreign Minister Qin Gang. Following the meeting, China’s initial statement was that the “Wagner Group incident was an internal affair for Russia”.
The statement was directed toward a gloabl audience, in an effort to signal to international actors that the mutiny is solely the business of the Kremlin. Therefore, as the Chinese position contends, any attempt to comment on or capitalize upon the situation would constitute interference in Russian state sovereignty, a central criticism towards American foreign policy that China and Russia have historically shared.
For the time being, China has doubled down on its relationship with Russia. According to an article recently published in the Global Times, the Wagner revolt is unlikely to have a significant impact on Putin’s legitimacy, and Western commentators who argue otherwise are deluding themselves into “wishful thinking.”
Though Chinese media is currently downplaying the uprising, Russia’s inability to maintain domestic control of its populace will likely raise concerns in Beijing. If Moscow’s domestic unrest continues to intensify, Russia may prove to be an increasingly unreliable partner for China’s attempt to reshape the international order.